Indian startups face attrition rate of as high as 21 per cent despite being good paymasters, says a study.

According to the study by global management consultancy Hay Group, in partnership with global venture capital firm Canaan Partners, 82 per cent of startups pay more than the market median and they also provide growth opportunities and interesting role content.

"Indian startups are good paymasters with 82 per cent paying above the market median, which is a promising sign for the ecosystem," Hay Group India Director Debabrat (Debu) Mishra said.

This pay philosophy, coupled with a value proposition that is attractive to the younger workforce, could become a huge challenge for traditional organisations, he added.

Startups generally resort to stock options as the most popular form of long-term incentives, which is given by 83 per cent of them and their prevalence is largely in top management levels.

"Startups earmark an average of 11 per cent of their stockholding for LTIs. Two-thirds of this stock is reserved for top management alone which confirms that wealth creation for top teams is a focus for startups," Mishra added.

Notwithstanding all these incentives, Indian startups still face an employee attrition rate of 17 per cent which rises to 21 per cent in growth startups and the most common reason for attrition was found to be pay, as cited by 34 per cent of the participants.

For hiring talent, employee referrals contribute nearly a third of all hires. Professional networking sites are used by 55 per cent of organisations in scouting for top management. Middle and junior management roles are hired through recruitment agencies and online job portals.

"We find employee referrals as the preferred hiring channel at Indian startups. This underlines the importance of network effects within the startup eco-system and is evident in the increasing use of social networks for recruitment as well," Mishra said.